Korean construction industry external audit companies saw their marginal firm ratio nearly triple between 2021 and 2025, according to data from the Korea Construction Industry Research Institute released on August 9. Among 2,004 construction external audit companies, marginal firms increased from 4.5% (62 companies) in 2021 to 11.3% (173 companies) in 2025. The deterioration stems from rising construction costs and project financing (PF) risks that have pushed more companies into situations where operating profits cannot cover interest expenses. The crisis unfolds as the government actively encourages housing supply expansion.
Marginal Firms Reach 173 Companies in 2025
The Korea Construction Industry Research Institute defines marginal firms as companies with an interest coverage ratio below 1 for the past three years. This classification identifies companies unable to cover interest costs with operating profits. The number of such companies among construction external audit firms grew from 62 in 2021 to 173 in 2025, representing an approximately 2.8-fold increase over the five-year period.
Operating Profit Margin Drops to 3.4%
Profitability metrics across construction external audit companies declined significantly. Operating profit margin fell from 4.5% in 2021 to 3.4% in 2025. Net profit margin relative to sales dropped from 4.2% to 2.3% during the same period. Return on assets (ROA), which indicates asset utilization efficiency, decreased from 5.2% to 3.6%.
![External audit company profitability indicator trends]()
External audit company profitability indicator trends [Source: Korea Construction Industry Research Institute]
Revenue growth rates also reversed, shifting from 17.9% growth in 2022 to negative 4.5% in 2025.
Debt Ratio Climbs to 155.3%
Financial health indicators showed deterioration alongside declining profitability. The debt ratio rose from 129.2% in 2021 to 155.3% in 2025. Current ratio, which measures short-term debt repayment capacity, fell from 282.6% in 2021 to 232.3% in 2024. This decline indicates a reduced proportion of current assets relative to current liabilities.
General Construction Sector Shows Steepest Decline
The increase in marginal firms appeared most pronounced in the general construction sector. The marginal firm ratio within general construction jumped from 3.2% in 2021 to 10.4% in 2025, more than tripling. Specialized construction saw an expansion from 5.9% to 12.4% during the same period.
![Marginal firm count and ratio trends]()
Marginal firm count and ratio trends [Source: Korea Construction Industry Research Institute]
General construction experienced steeper declines in both profitability and financial health. While specialized construction's operating profit margin decreased from 4.0% to 3.0% over five years, general construction dropped from 5.0% to 3.6%. Debt ratios for specialized construction rose from 116.2% to 139.6%, while general construction increased from 144.0% to 171.2%.
The general construction sector's difficulties centered on building projects. Net profit margin relative to sales for civil engineering decreased from 4.3% in 2021 to 3.5% in 2025, while building construction plummeted from 5.0% to 1.0%.
Expert Calls for PF Structure Reform
Lee Ji-hye, research fellow at the Korea Construction Industry Research Institute, stated that the poor performance of construction external audit companies represents "a structural problem beyond economic slowdown, with overlapping factors including rising construction costs, PF risks, financial cost burdens, and delayed payment collection." She added that "general construction in particular faces urgent needs for financial structure improvement and risk management strengthening due to high proportions of large projects and PF."
Lee further noted that "short-term measures require liquidity management and interest burden relief, while medium- to long-term approaches must combine PF structure improvements with normalization of construction cost and payment systems."
FAQ
What defines a marginal firm in the Korean construction industry?
The Korea Construction Industry Research Institute defines marginal firms as companies with an interest coverage ratio below 1 for the past three years, meaning their operating profits cannot cover interest expenses.
How much did the marginal firm ratio increase among construction companies between 2021 and 2025?
The marginal firm ratio among construction external audit companies rose from 4.5% (62 companies) in 2021 to 11.3% (173 companies) in 2025, representing approximately a 2.8-fold increase.
